Canada CPI remains at 3-year low, easing pressure for rate hike

OTTAWA — No matter which way you slice it, food costs are taking a smaller chunk out of Canadian incomes.

While food prices were up 2.4% for all of 2012, that was still weaker than the 3.7% gain the previous year, according to Statistics Canada’s annual review of consumer spending.

Much of that slower price rise can be attributed to a drop in fresh vegetable costs, the federal agency said Friday, while there were still record gains in meat prices and restaurant bills.

But it wasn’t only food costs that rose at a slower pace last year, increases in gasoline prices also dropped — to a relatively meager 2.5% from a whopping gain of 20% in 2011. In May 2011 alone, gas prices jumped 29.5% as the cost of crude was peaking.

Overall, Canada’s inflation rate came in at a tame annual pace of 1.5% in 2012, down from a 2.9% increase a year earlier.

That is the lowest annual gain since 2009 — near the tail end of the recession — when prices rose 0.3%.

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However, the average annual increase in consumer prices has been 1.8% from 1992 onward.

Statistics Canada’s review of annual prices — based on average monthly values over the year — was accompanied Friday by the agency’s reading for the final month of 2012.

December’s overall price gains were unchanged from the previous month, at a three-year low of 0.8%. The previous low was 0.1% in October 2009.

The core rate — stripping out many volatile items such as some food and energy products — rose 1.1%, compared to 1.2% in November.

Economists had expected price gains to pick up last month at an annual rate of 1.2%, with a core reading of 1.4%.

Increases in food prices were also weaker on a monthly basis, easing to 1.5% in December from 1.7% the month before.

Consumers paid 2.2% more last month for food purchased at restaurants, and 4.4% for meat at grocery outlets. Still, prices for fresh vegetable in December actually fell 5.8%.

“Still, people are very cautious in their spending,” said Garth Whyte, president and CEO of the Canadian Restaurant and Foodservice Association.

“Maybe more people are coming out to restaurants, because they like the event and it’s the No. 1 place to go with their family and friends, but they’re skipping maybe appetizers and deserts.”

Despite the general easing in food inflation, there are still concerns that last year’s drought in the U.S., may soon translate into higher prices in this country.

“Last year was the hottest summer in recorded history in the United States and they’re expecting it to happen again. And the hottest areas are in the corn belt, and that is feed for chicken and for beef,” Mr. Whyte said.

Given the benign inflation environment, there is little chance that borrowing costs will be rising any time soon.

On Wednesday, the central bank held its trendsetting overnight rate at a near-record low 1%, unchanged since September 2010.

At the same time, the bank — in its quarterly Monetary Policy Report — said inflation would likely stay below its target rate of 2% until the third quarter of 2014.

“Most likely the rate hikes that we were expecting in 2013 will come now in the beginning of 2014,” said Michael Ward, CEO for Europe and an North America at USForex.
The central bank also forecast economic growth of 2% this year, down from the bank’s October forecast of 2.3%. It estimated growth for 2012 would come in at 1.9%, below the previous outlook of 2.2%.

The bank sees a 2.7% advance in 2014, with the economy regaining full capacity during the second half of next year.

“I think this is something that is disappointing, the fact that we still seem to be chugging along and not having the growth that was the growth that was expected,” said Mr. Ward, based in San Francisco.

“We’re seeing the Canadian dollar weakening off here . . . [and] this starts to potentially spark some more international trade and hopefully provide positive movement in the economy.”

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